After months of mounting pressure from economic analysts, small businesses, manufacturing concerns, the International Monetary Fund (IMF), and politicians such as Senate President Bukola Saraki, the Central Bank of

Nigeria
(CBN) monday relaxed some of its foreign currency controls by lifting its ban on foreign currency cash deposits in commercial banks.

The CBN Governor, Mr. Godwin Ifeanyi Emefiele, who disclosed this in a press statement he personally signed, said the policy should be implemented with immediate effect.

He equally announced that the central bank would discontinue its sale of foreign exchange to Bureau de Change (BDC) operators, confirming THISDAY's exclusive report last month.

According to Emefiele, BDC operators would now need to source their foreign exchange from autonomous sources.

His directive, however, led to a slump of the naira on the parallel market to N282 to the dollar yesterday, from N277 at the weekend. Emefiele stressed that the CBN would deploy more resources to monitoring these sources to ensure that no operator violates the country's anti-money laundering laws.

He noted with grave concern that BDC operators had abandoned the original objective leading to their establishment, which was to serve retail end users who need $5,000 or less.

Instead, he said currency dealers became wholesale dealers in foreign exchange to the tune of millions of dollars per transaction.

"Thereafter, they use fake documentations like passport numbers, bank verification numbers, boarding passes, and flight tickets to render weekly returns to the CBN," he said.

"Let me note very importantly that these measures are not intended to be punitive on anyone or group. Rather it is meant to ensure that the CBN is better able to carry out its mandate in an effective and efficient manner, which guarantees preservation of our scarce commonwealth, and that our hard-earned financial system stability remain intact to the benefit of all Nigerians," he said.

Providing more insight into the decision of the central bank to end dollar cash sales to BDCs, he said: "In total disregard of the difficulties that the Bank is facing in meeting its mandate of 'maintaining the country's foreign exchange reserves to safeguard the value of the naira', we have continued to observe that stakeholders in some of the subsectors have not been helpful in this direction.

"Despite the fact that

Nigeria
is the only country in the world where the central bank sells dollars directly to BDCs, operators in this segment have not reciprocated the Bank's gesture to help maintain stability in the market.

"Whereas the Bank has continued to sell US dollars at about N197 per dollar to these operators, they have in turn become greedy in their sales to ordinary Nigerians, with selling rates of as high as N250 per dollar.

"Given this rent-seeking behaviour, it is not surprising that since the CBN began to sell foreign exchange to BDCs, the number of operators have risen from a mere 74 in 2005 to 2,786 BDCs today. In addition, the CBN receives close to 150 new applications for BDC licences every month."

Emefiele said rather than help to achieve the laudable objectives for which they were licensed, the central bank noted the following unintended outcomes: An avalanche of rent-seeking operators only interested in widening margins and profits from the foreign exchange market, regardless of prevailing official and interbank rates; potential financing of unauthorised transactions with foreign exchange procured from the CBN; gradual dollarisation of the Nigerian economy with attendant adverse consequences on the conduct of monetary policy and subtle subversion of cashless policy initiative; and prevailing ownership of several BDCs by the same promoters in order to illegally buy foreign currencies multiple times from the CBN.

"More disturbing, though, is the financial burden being placed on the Bank and our limited foreign exchange. The CBN sells $60,000 to each BDC per week. This amount translates to $167 million per week, and about $8.6 billion per year.

"In order to curtail this reserve depletion, we have reduced the amount of weekly sales to US$10,000 per BDC, which translates into US$28.4 million depletion of the foreign reserves per week and US$1.476 billion per annum.

"This is a huge hemorrhage on our scarce foreign exchange reserves, and cannot continue especially because we are also concerned that BDCs have become a conduit for illicit trade and financial flows," he said.

Justifying the forex curbs introduced by the CBN, the governor noted that

Nigeria
has been dealing with the effects of three serious and simultaneous global shocks, which began around the third quarter of 2014.

These are the over 70 per cent drop in the price of crude oil, which contributes the largest share of

Nigeria's
foreign exchange reserves; geopolitical tensions along critical trading routes in the world including between
Russia
and western powers,
Saudi Arabia
and
Iran
, etc; and normalisation of the monetary policy by the United States Federal Reserve Bank.

"In the aftermath of these shocks, growth in the global economy in the first two quarters of 2015 was less than envisaged, thereby leading to a weak outlook for the rest of the year.

"Indeed, estimates of global growth for 2015 have been revised from almost four per cent to 3.1 per cent. The challenges of these global developments are having lopsided effects in many emerging and developing countries.

"In 2015, GDP growth decelerated from 3.9 per cent in the first quarter to 2.4 per cent in the second quarter. However, it has increased slightly to 2.8 per cent in the third quarter," he explained.

The CBN governor added that headline inflation had remained at single digit, staying slightly above the central bank's tolerance range of 6-9 per cent, having risen marginally from 9.3 per cent in October to 9.4 per cent in November 2015.

A breakdown of the inflation dynamics, he said, indicated that the underlying pressure derives largely from the lingering base effects of unfavourable energy prices and exchange rate pass-through, which may have been exacerbated by delayed harvests.

Furthermore, the CBN governor explained that following the drop in crude prices from a peak of $114 barrel in July 2014 to as low as US$33/barrel in January 2016, the country's reserves have suffered great pressure from speculative attacks, round tripping and front loading activities by actors in the forex market.

The fall in oil prices, according to him, also implied that the CBN's monthly foreign earnings had fallen from as high as $3.2 billion to current levels of as low as $1 billion.

"Yet, the demand for foreign exchange by mostly domestic importers has risen significantly."

He added: "For example, the last time we had oil prices at about $50 per barrel for an extended period of time was in 2005. At that time, our average import bill was N148.3 million per month. In stark contrast, our average import bill for the first nine months of 2015 is N917.6 billion per month, even though oil prices are now less than $35 per barrel.

"The net effect of these combined forces unfortunately is the depletion of our foreign exchange reserves. As of June 2014, the stock of foreign exchange reserves stood at about $37.3 billion but has declined to around $28.0 billion as of today."

In order to avoid further depletion of reserves, he said the CBN took a number of countervailing actions including the prioritisation of the most critical needs for foreign exchange.

In this regard, the central bank's highly limited supply of foreign exchange for matured letters of credit from commercial banks; for the importation of petroleum products; for importation of critical raw materials, plants, and equipment, and payments for school fees, BTA, PTA, and related expenses, became priorities.

As such, he said under the prevailing circumstance, it would be difficult to meet expectations for shopping needs abroad.

According to him, the sum of $100 million is required to cater for the forex needs of shoppers abroad, representng an average of $500 million weekly.

He explained that since the CBN didn't ask the banks to place the ban on the use of their debit cards abroad, the removal of such restrictions would also have to come from the banks.

He appealed to Nigerians to show understanding at this difficult time, adding that the measures so far taken were not intended to be punitive on anyone or group.

Addressing concerns raised during the maiden presidential media chat by President Muhammadu Buhari that Nigerians schooling abroad cannot access foreign exchange to pay their fees, Emefiele said the CBN had allocated the sum of $285 million to commercial banks for the payment of school fees between June and December 2015 while an estimated $600 million would have been allocated for the whole of 2015.

He added that the sum of $150 million was allocated for BTA and PTA between June and December 2015 while $400 million would have been paid altogether last year.

Commenting on the partial relaxation of forex curbs, the Chief Executive Officer of the Financial Derivatives Company Limited, Mr. Bismarck Rewane, described the CBN's pronouncement as the beginning of the journey towards addressing the issue of forex restrictions in the country.

"But the price and value of the currency needs to be addressed. The next step should be at what price? Can people use their ATM cards for transactions?

"But this is the beginning of a managed-floating rate. It is in the right direction, but we need to do more," Rewane added.

On his part, the acting President, Association of Bureau De Change Operators of Nigeria, Alhaji Aminu Gwadabe, said his members had been expecting the pronouncement on the end of dollar sales from the central bank.

"We have been expecting it for a long time. We all know where the economy is and that the forex reserves are at the point of being wiped out. But it is important to keep the records straight.

"Whenever there are issues with exchange rate management, everyone blames BDCs, forgetting that we constitute only three per cent of the market.

"Definitely, this policy would lead to a further depreciation of the naira, there would be cost-push inflation and job losses," he added.

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OTIC Feb. 23, 2018 – Dallas

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